Friday, May 16, 2014

Sensex touches 25000 – ready for a drum roll?

In the olden days – before the advent of telephone, telegraph, radio or TV – the only way to get one’s message across was to employ a drummer. One walked into a village or a small town and let the drummer do his thing to gather people around. Then the message could be delivered.

Beating one’s own drum is considered impolite in society. The question is: If you have a drum, who else is going to beat it if not you?

Times have changed. The Internet has shrunk the world. Satellite communications has enabled messages to be transmitted in nanoseconds. Information travels almost at the speed of light and is disseminated equally fast.

Still, some messages that need communicating remain buried under a mound of information overload. One such message – communicated more than a year back - is being resurrected today.

A year ago, the economy was in a dismal state. Poor governance and scams had tarnished India’s image. Interest rates were high. So was inflation. Fiscal and current account deficits seemed out of control. Capital expenditure by companies had slowed to a trickle. Infrastructure projects were stuck due to environmental and financial issues. Murphy’s Law was at work – anything that could go wrong was going wrong.

No wonder, small investors were a scared lot. Savings were being poured into gold and fixed income instruments. Equities were shunned. Stock brokers were lamenting the dearth of business. In such a situation, a long-term technical view was presented explaining why the Sensex should touch 25000. No one even imagined then that NaMo would become PM with a thumping majority.

Part of the reason for writing that post was to dispel the overwhelming mood of negativity among many small investors, and to point out that inflation-beating returns can be realised through timely investment in the stock market.

Sensex was at 19735 back on May 2 ‘13. By touching 25375 today, the index gained more than 28% in a little more than a year – beating inflation handsomely. This also makes the case why small investors are better off putting money in an index fund instead of trying their luck with individual stocks.